Dyersburg Mach. Works, Inc. v. Rentenbach Engineering Co.

• Decision Date: 02 May 1983
• Parties: DYERSBURG MACHINE WORKS, INC., Plaintiff-Appellant, v. RENTENBACH ENGINEERING COMPANY, O.C. McCarley Corporation and Firemen's Insurance Company, Defendants-Appellees. 650 S.W.2d 378
• Court: Tennessee Supreme Court

Page 378

650 S.W.2d 378

DYERSBURG MACHINE WORKS, INC., Plaintiff-Appellant, v. RENTENBACH ENGINEERING COMPANY, O.C. McCarley Corporation and Firemen's Insurance Company Defendants-Appellees.

650 S.W.2d 378

Supreme Court of Tennessee.

May 2, 1983.

John W. Palmer, Dyersburg, for plaintiff-appellant.

Frankie Wade, Knoxville, Lyle Reid, Brownsville, for defendants-appellees.

BROCK, Justice.

The defendant, Rentenbach Engineering Company, a Tennessee corporation, was engaged as the general contractor for the construction of a hospital facility at Louisa, Lawrence County, Kentucky, by the owner, Extendicare of Kentucky, Inc. Defendant, O.C. McCarley Corporation, a Tennessee corporation, whose principal place of business is located in Haywood County, Tennessee, was a subcontractor for a portion of the work in constructing the hospital. The defendant, Firemen's Insurance Company, is a New Jersey corporation qualified to do business in Tennessee and, as surety, executed a bond along with Rentenbach, as principal, payable to Extendicare, conditioned to pay "to all claimants as hereinafter defined for all labor and material used or reasonably required for use in the performance of the contract ...." This bond is referred to throughout the record as the "labor and material" bond.

The plaintiff, Dyersburg Machine Works, Inc., is a Tennessee corporation whose place of business is located at Dyersburg, Tennessee. The plaintiff furnished materials to defendant, O.C. McCarley Corporation, for the latter's use in performing its subcontract in the construction of the hospital; it is undisputed that the McCarley Corporation owes the plaintiff the sum of $40,327.53 for the materials thus used.

Plaintiff brought this action in the Chancery Court for Haywood County, Tennessee, against the McCarley Corporation to recover the debt mentioned and in the same action sued Rentenbach and Firemen's on their obligation under the bond for the debt owed by McCarley. The Chancellor awarded the plaintiff a decree for the amount sought against all three defendants but gave a judgment over against McCarley on behalf of Rentenbach and Firemen's for any amount which they might pay on the judgment.

McCarley did not appeal from the decree of the Chancellor; Rentenbach and Firemen's did appeal to the Court of Appeals and that court reversed the decree of the Chancellor and decreed that "this lawsuit is dismissed without prejudice to the rights of the plaintiff." From the judgment of the Court of Appeals the plaintiff, Dyersburg, sought review in this Court.

In the trial court the defendants, Rentenbach and Firemen's, interposed three defenses, (1) that plaintiff had failed to give notice of its claim within the time required by a provision of the labor and material bond, (2) had failed to file suit within one year of the completion of Rentenbach's work on the contract, as required by another stipulation of the bond and (3) had brought this action in Tennessee in violation of a provision of the bond that:

"No suit or action shall be commenced hereunder by any claimant:

* * *

(c) other than in a state court of competent jurisdiction in and for the county or other political subdivision of the state in which the project, or any part thereof, is situated, or in the United States District Court for the District in which the project or any part thereof, is situated, and not elsewhere."

It was this last defense that the Court of Appeals sustained.

The Chancellor found that the plaintiff had complied with the notice and time limitation provisions of the labor and material bond and thus overruled the first two defenses above mentioned, but he held that the forum selection provision of the labor and material bond was against public policy and, therefore, was unenforceable.

The Court of Appeals did not address the first two defenses but, as stated, did sustain the third defense based upon the forum selection clause of the bond. In this Court the parties ask that we determine the validity of the forum selection clause contained in the bond and, if it is found to be valid, the effect, if any, that the clause should have in this litigation.

Agreements which purport to exclude the jurisdiction of courts other than those specifically named in such agreements and which relate to the adjudication of controversies that may arise in the future have traditionally been held to be unenforceable because they have been regarded as in violation of public policy. Annot.: 56 A.L.R.2d 306, Sec. 4[a] and cases there cited; 20 Am.Jur.2d Courts Sec. 141 (1965). However, the more recent decisions hold that the validity or invalidity of such forum selection clauses depends upon whether they are fair and reasonable in light of all the surrounding circumstances attending their origin and application. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Krenger v. Pennsylvania R. Co., 174 F.2d 556 (2d Cir.1949); Muller & Co. v. Swedish Am. Line Limited, 224 F.2d 806 (2d Cir.1955), 56 A.L.R.2d 295; Gilbert, "Choice of Forum Clauses and International and Interstate Contracts," 65 Ky.Law Journal 1 (1976).

The Model Choice of Forum Act ¹ provides that an unselected court must give effect to the choice of the parties and refuse to entertain the action unless (1) the plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action; (2) or the other state would be a substantially less convenient place for the trial of the action than this state; (3) or the agreement as to the place of the action was obtained by misrepresentation, duress, abuse of economic power, or other unconscionable means; (4) or it would for some other reason be unfair or unreasonable to enforce the agreement. ²

Section 80 of the Restatement (2d) of Conflict of Laws (1971), provides:

"The parties' agreement as to the place of the action cannot oust a state of judicial jurisdiction, but such an agreement will be given effect unless it is unfair or unreasonable."

Courts which recognize the validity of forum selection clauses generally, nevertheless, have refused to enforce them against third parties who did not agree to the contract containing such clause...